Correlation Between RB Food and Home Product

Can any of the company-specific risk be diversified away by investing in both RB Food and Home Product at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining RB Food and Home Product into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RB Food Supply and Home Product Center, you can compare the effects of market volatilities on RB Food and Home Product and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in RB Food with a short position of Home Product. Check out your portfolio center. Please also check ongoing floating volatility patterns of RB Food and Home Product.

Diversification Opportunities for RB Food and Home Product

-0.33

Correlation Coefficient

RB Food  Home Product

Very good diversification

The 3 months correlation between RBF and Home is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding RB Food Supply and Home Product Center in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Product Center and RB Food is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on RB Food Supply are associated (or correlated) with Home Product. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Product Center has no effect on the direction of RB Food i.e., RB Food and Home Product go up and down completely randomly.

Pair Corralation between RB Food and Home Product

Assuming the 90 days trading horizon RB Food Supply is expected to generate 1.7 times more return on investment than Home Product. However, RB Food is 1.7 times more volatile than Home Product Center. It trades about 0.12 of its potential returns per unit of risk. Home Product Center is currently generating about -0.07 per unit of risk. If you would invest  590.00  in RB Food Supply on October 10, 2024 and sell it today you would earn a total of  125.00  from holding RB Food Supply or generate 21.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

RB Food Supply  vs.  Home Product Center

RB Food Supply

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RB Food Supply are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, RB Food disclosed solid returns over the last few months and may actually be approaching a breakup point.

Home Product Center

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Product Center has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with RB Food and Home Product

The main advantage of trading using opposite RB Food and Home Product positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RB Food position performs unexpectedly, Home Product can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Home Product will offset losses from the drop in Home Product's long position.

The idea behind RB Food Supply and Home Product Center pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.